Tesla, the investment

[Nysoz]

Only if you are concentrated in the right thing at the right time.

That's also true. So you have to do your due diligence if you choose to invest in an individual company and have a plan. I like investing in companies I understand, use, and follow such as Tesla.

There's a lot of different examples out there that if you concentrated in them, you'd increase wealth faster than the index, but also have a chance to not preserve your wealth. Everyone's different in their risk tolerance and ability to have the time to follow companies close enough to make sense.

[BCBiker]

Concentration builds wealth, diversification preserves it.

If you really don't need the money after winning the game then continue plugging away. I've won my game so I'm starting to diversify a bit to help preserve some wealth needed for FIRE, but keeping a good exposure to try and continue building wealth past my FI number.

I do like your plan of exercising as many shares as you can (sometimes using margin) and selling covered calls to cover margin interest and cash flow to reduce margin use. That's essentially what I do as well.

The next step is planning your exit and taxes. Exercising your calls loses any extrinsic value of the options so it matters a bit how much that is depending how far they are to expiration/volatility. If you have any leaps held long enough for LTCG, it might be better to sell the options and buy the shares rather than exercising if there's still a decent amount of extrinsic value left.

If you do plan on exercising and using margin, depending on how much margin you use, the rate can be negotiable.

the options premium on $200 calls even ones expiring next Jan 2023 is negligible. They will all be ltcg in March. Even in that situation I am paying a lot of taxes so I would need a 20% pull back to have same shares so exercising makes sense. I could avoid margin altogether by selling a few but I am really trying to maximize share count and I have already sold a lot to have the cash that I hold now. The amount of margin I will be using will be relatively small so risk of margin call is small. I also will not need any margin until next year when I exercise the last options so I will evaluate the situation at that time.

I could diversify and fire but it seems early. Just 2.5 years out of fellowship and have a lot of good reasons to continue in my field for at least 10 years. I would like to get R funding for my core research project and my clinical work is quite interesting.

I am going to cut back on side gigs though.

my exit strategy may be to give away the shares when I die tbh and hold the shares as collateral for other investments. Assuming the company grows at low end of expectations having $50M that I can borrow from with minimal risk and 0.7-2% interest. Also these shares can generate regular cash flows well beyond living expenses by lending them to shorts or selling covered calls.

Seems like an easy choice actually. A concentrated bet has a lot of options that are not available to a traditional indexer. You could sell covered calls on vti but it won’t be worth your time. And most people don’t realize the value of margin because of risk aversion or the portfolio never grows large enough to make borrowing 10% worth the hassle.

[Zaphod]

the options premium on $200 calls even ones expiring next Jan 2023 is negligible. They will all be ltcg in March. Even in that situation I am paying a lot of taxes so I would need a 20% pull back to have same shares so exercising makes sense. I could avoid margin altogether by selling a few but I am really trying to maximize share count and I have already sold a lot to have the cash that I hold now. The amount of margin I will be using will be relatively small so risk of margin call is small. I also will not need any margin until next year when I exercise the last options so I will evaluate the situation at that time.

I could diversify and fire but it seems early. Just 2.5 years out of fellowship and have a lot of good reasons to continue in my field for at least 10 years. I would like to get R funding for my core research project and my clinical work is quite interesting.

I am going to cut back on side gigs though.

my exit strategy may be to give away the shares when I die tbh and hold the shares as collateral for other investments. Assuming the company grows at low end of expectations having $50M that I can borrow from with minimal risk and 0.7-2% interest. Also these shares can generate regular cash flows well beyond living expenses by lending them to shorts or selling covered calls.

Seems like an easy choice actually. A concentrated bet has a lot of options that are not available to a traditional indexer. You could sell covered calls on vti but it won’t be worth your time. And most people don’t realize the value of margin because of risk aversion or the portfolio never grows large enough to make borrowing 10% worth the hassle.

20% pullback is nothing for tesla but I totally get where you're coming from this close to that 1 y point. Its a tough situation. Option IV is getting incredibly high on TSLA right now, and at some point (soon to now) even if it moves your way, you'll still lose money. This is a great time to sell OTM calls against your position, though that would generate a ton of taxes too, no way around that for you.

I would say you'll definitely be thinking about what could of been if it halfs from here, not saying it will, just its human nature. No reason not to take a smidge off the table, a third, half, etc...and put it into safer plays. While tsla can still rise and this environment is ripe for some kind of blow off top and stimmy, etc....(would press me to hold for sure) it certainly cant do another 20x long term like it has now (just not enough dough in the world ofc), but something else can.

[BCBiker]

20% pullback is nothing for tesla but I totally get where you're coming from this close to that 1 y point. Its a tough situation. Option IV is getting incredibly high on TSLA right now, and at some point (soon to now) even if it moves your way, you'll still lose money. This is a great time to sell OTM calls against your position, though that would generate a ton of taxes too, no way around that for you.

I would say you'll definitely be thinking about what could of been if it halfs from here, not saying it will, just its human nature. No reason not to take a smidge off the table, a third, half, etc...and put it into safer plays. While tsla can still rise and this environment is ripe for some kind of blow off top and stimmy, etc....(would press me to hold for sure) it certainly cant do another 20x long term like it has now (just not enough dough in the world ofc), but something else can.

Ya. Basics are 50% to taxes 50% to margin until margin gone.

I don’t really care about short term pull backs. Only care about share count. Sure there could be a huge pull back but I am not going to try to time it. Also I’m not going to do anything before March and pay stcg on my current gains because then I would need 54% pull back. If we are at $2000 per share in March I will reconsider but that would mean I keep rolling up selling otm options so that would push me out a long time horizon.

[BCBiker]

That's also true. So you have to do your due diligence if you choose to invest in an individual company and have a plan. I like investing in companies I understand, use, and follow such as Tesla.

There's a lot of different examples out there that if you concentrated in them, you'd increase wealth faster than the index, but also have a chance to not preserve your wealth. Everyone's different in their risk tolerance and ability to have the time to follow companies close enough to make sense.

some things 1000X plus over index.

[CordMcNally]

Ya. Basics are 50% to taxes 50% to margin until margin gone.

I don’t really care about short term pull backs. Only care about share count. Sure there could be a huge pull back but I am not going to try to time it. Also I’m not going to do anything before March and pay stcg on my current gains because then I would need 54% pull back. If we are at $2000 per share in March I will reconsider but that would mean I keep rolling up selling otm options so that would push me out a long time horizon.

Honestly, a 54% pullback still wouldn't justify the price but we're obviously in a short term situation where nothing matters or makes sense as far as prices go. The stimulus checks don't appear to be a slam dunk like they did previously since a Senator from WV will arguably be the most important person in government for a while.

[Tim]

Sometimes it is hard to comprehend, but I think you are 100% correct taking a hard look at the tax impacts of your strategies.

I do question your long term decisions. Not from Tesla or the options. From a behavioral finance perspective.
Counter intuitive behavioral reactions are commonly illustrated with the Sunken Cost Fallacy.
https://www.behavioraleconomics.com/...-cost-fallacy/

Attachments and experience lead to actions that aren’t based on ones own critical thinking skills and analysis. I would seriously suggest introspection.

Do you have a Sunk Gain Fallacy?

If you backed up to a 100% cash position, would you make the same investment choices? Is that the best use and risk assumptions for $7m new cash?

If this is the choice, tell me all your new and continuing FI funds are going into the same strategy. There is no difference between dollars invested in the future. Sure your risk capacity has risen and you can do this. Seems like recent success is coming into play.
Suggest not setting your goal as number of shares. Best choice is managing value.
Just a bias that may or may not exist.

[BTC]

From a value investing stand point it has a PE ratio greater than 1400. It can keep going up, but the justification just isn’t there. Maybe this is reminiscent of the dot com boom?

[CordMcNally]

From a value investing stand point it has a PE ratio greater than 1400. It can keep going up, but the justification just isn’t there. Maybe this is reminiscent of the dot com boom?

It can certainly go much higher. I think a majority of people feel it is incredibly overvalued (it's already way past when Musk tweeted that it was overvalued) but you can still make a lot of money in bubbles. The question is when will it come back down to earth? Next week...next year? Nobody knows. It's going to make some people a lot of money and it's going to end up making some people lose a lot of money.

[BCBiker]

Sometimes it is hard to comprehend, but I think you are 100% correct taking a hard look at the tax impacts of your strategies.

I do question your long term decisions. Not from Tesla or the options. From a behavioral finance perspective.
Counter intuitive behavioral reactions are commonly illustrated with the Sunken Cost Fallacy.
https://www.behavioraleconomics.com/...-cost-kfallacy/

Attachments and experience lead to actions that aren’t based on ones own critical thinking skills and analysis. I would seriously suggest introspection.

Do you have a Sunk Gain Fallacy?

If you backed up to a 100% cash position, would you make the same investment choices? Is that the best use and risk assumptions for $7m new cash?

If this is the choice, tell me all your new and continuing FI funds are going into the same strategy. There is no difference between dollars invested in the future. Sure your risk capacity has risen and you can do this. Seems like recent success is coming into play.
Suggest not setting your goal as number of shares. Best choice is managing value.
Just a bias that may or may not exist.

If I didn’t have this huge position I would be buying TSLA whenever I can. I still have an auto investment in TSLA that is quite minimal relative to overall investment, around $2500 per month in taxable from checking that I consider to be part of regular cash outflow along with mortgage and living expenses.

Every dollar in tsla today is $50 plus over a 30 year investment period. I love that people consider it overpriced because I consider it cheap compared to vti or voo. I throw all that I can in 403(b) in traditional funds and have a good early career diversified stock/bond portfolio.

if I had $7-8m in cash what percentage would I go tsla? Not 100% given the 100% run since November but I would probably do $1M per quarter up to $5M. I also have options strategy that makes this more valuable which I would not know had I not got here with options.

some day I’ll make a video or mega post on how this works.

[BCBiker]

From a value investing stand point it has a PE ratio greater than 1400. It can keep going up, but the justification just isn’t there. Maybe this is reminiscent of the dot com boom?

P/E is a poor metric when a company has just hit profitability and is doubling capacity every 12-18 months.

The operation efficiency from a low base is poor but at 5M vehicles with high margin software sales and exponentially growing energy business; people screaming bubble just don’t know what they are talking about.

[CordMcNally]

Every dollar in tsla today is $50 plus over a 30 year investment period. I love that people consider it overpriced because I consider it cheap compared to vti or voo.

It's not just people who think it is overpriced. It's overpriced by basically every metric used to value a stock. But again, money can be made in these situations but it'd really help to know when things are going to normalize.

[CordMcNally]

The operation efficiency from a low base is poor but at 5M vehicles with high margin software sales and exponentially growing energy business; people screaming bubble just don’t know what they are talking about.

I say that people screaming 'not bubble' don't know what they're talking about. Out of my curiosity, were you around and an investing participant during the DotCom bubble? I wasn't but there's a lot of people who lived through that and get very similar feelings.

[fatlittlepig]

If I didn’t have this huge position I would be buying TSLA whenever I can. I still have an auto investment in TSLA that is quite minimal relative to overall investment, around $2500 per month in taxable from checking that I consider to be part of regular cash outflow along with mortgage and living expenses.

Every dollar in tsla today is $50 plus over a 30 year investment period. I love that people consider it overpriced because I consider it cheap compared to vti or voo. I throw all that I can in 403(b) in traditional funds and have a good early career diversified stock/bond portfolio.

if I had $7-8m in cash what percentage would I go tsla? Not 100% given the 100% run since November but I would probably do $1M per quarter up to $5M. I also have options strategy that makes this more valuable which I would not know had I not got here with options.

some day I’ll make a video or mega post on how this works.

this is great. Kind of like watching a slow motion train wreck or you will be an incredibly rich baron. Keep posting.

[BCBiker]

I say that people screaming 'not bubble' don't know what they're talking about. Out of my curiosity, were you around and an investing participant during the DotCom bubble? I wasn't but there's a lot of people who lived through that and get very similar feelings.

I was in high school and not aware. I get the sentiment. I fully anticipate a pullback on TSLA and market in general but there are key differences. This stock run is driven buy cheap, cheap money and no returns on cash/ cash equivalents.

Tesla will take some time to grow into valuation and the price now is really based on 2025 expectations. That is fine with me since I own so much now and so may h Ashe opportunity to get more if there is any market concerns related to execution.

I agree that all traditional metrics mean it is overvalued but no company has had such a huge runway on such a large/challenging addressable market and they are so far ahead that it is possible no one will catch them.

They also have built everything in house which means no one can get their tech from suppliers. And they own their distribution, service, and fueling network. People comparing them to car manufacturers are so clueless it hilarious. I didn’t get to more speculation on self driving and grid solutions but those are cherries on top.